DEFA14A: Matthews International Urges Shareholders to Vote for Company's Director Nominees Amidst Proxy Contest

Matthews International files its definitive proxy statement and sends a letter to shareholders, urging them to vote for the company's three director nominees on the WHITE proxy card at the upcoming Annual Meeting.

Summary

• Matthews International has filed its definitive proxy materials and is urging shareholders to vote for its three director nominees at the Annual Meeting on February 20, 2025.
• The company highlights its strategic progress, including the sale of SGK Brand Solutions and the ongoing evaluation of strategic alternatives for its portfolio of businesses.
• Matthews criticizes Barington Capital's nominees, stating they lack relevant experience and that Barington is pursuing its own interests at the expense of other shareholders.
• The company emphasizes its board's qualifications, engagement, and commitment to unlocking shareholder value.
• Matthews reported $1.8 billion in consolidated revenue in fiscal 2024 and met its revised guidance target for profitability.
• The sale of SGK to SGS & Co. is expected to generate $350 million in total upfront consideration, with approximately $250 million in immediate cash proceeds to be used for debt repayment.
• The new entity formed by SGS & Co. will have an enterprise value of approximately $900 million, representing an adjusted EBITDA multiple of 9x on a trailing-twelve-month basis.
• Matthews will retain a 40% ownership interest in the new entity, expecting to realize over $50 million in annual run-rate cost synergies over a 30-month expected integration period.
• The company has retained J.P. Morgan to support the evaluation of strategic alternatives for its portfolio of businesses.
• Matthews claims it has worked constructively with Barington Capital for more than two years, but Barington's nominees lack knowledge of Matthews' business.

Sentiment

Score: 6

Explanation: The document presents a mixed sentiment. While highlighting positive developments like the SGK sale and strategic review, it also addresses the negative aspects of the proxy contest and potential risks. The overall tone is defensive, aiming to reassure shareholders and counter Barington's arguments.

Positives

• Matthews is selling SGK Brand Solutions at a compelling valuation, expected to generate $350 million in total upfront consideration.
• The company is using the immediate cash proceeds of approximately $250 million from the SGK sale to repay debt.
• Matthews is actively evaluating strategic alternatives for its portfolio of businesses to drive shareholder value.
• The company's Memorialization business is an industry leader with steady, predictable free cash flow.
• Matthews met its revised guidance target for profitability in fiscal 2024.
• The company expects demand recovery in Industrial Technologies to have a positive impact in the latter part of fiscal 2025 and into 2026.
• Matthews is well-positioned to lead the transition to electric vehicles through its investment in advanced rotary processing technologies.

Negatives

• Matthews is facing a proxy contest from Barington Capital, indicating shareholder dissatisfaction.
• The company claims Barington's nominees lack relevant experience and understanding of Matthews' business.
• Matthews states that Barington's behavior has not been constructive and that Mr. Mitarotonda declined an opportunity to participate as a supportive shareholder of the SGK transaction.
• The company acknowledges that its business segments have varied growth trajectories with different capital needs.

Risks

• The company cites uncertainties regarding future actions that may be taken by Barington in furtherance of its intention to nominate director candidates.
• Potential operational disruption caused by Barington's actions may make it more difficult to maintain relationships with customers, employees, or partners.
• The company mentions risks related to changes in domestic or international economic conditions, foreign currency exchange rates, and interest rates.
• The company acknowledges risks related to supply chain disruptions, labor shortages, and labor cost increases.
• The company mentions the impact of global conflicts, such as the current war between Russia and Ukraine.

Future Outlook

Matthews expects to announce several initiatives over the course of the 2025 fiscal year that will help drive shareholder value and achieve the objectives of its strategic alternatives evaluation.

Management Comments

• Under the Board and CEO Joe Bartolacci's leadership, Matthews has developed into a strong, diversified and resilient provider of innovative solutions for customers around the globe.
• The Board is dedicated to driving long-term value creation, and the strategic alternatives process is a reflection of that commitment.
• The Board believes its refreshment efforts are a more effective way to bring new perspectives to the Board than this unnecessary and disruptive proxy contest initiated by Barington.

Industry Context

The announcement highlights Matthews' efforts to streamline its business structure and focus on high-growth areas, aligning with a broader trend of corporate restructuring and portfolio optimization in the industrial sector. The proxy contest reflects increasing shareholder activism pushing for strategic changes and value creation.

Comparison to Industry Standards

• The SGK transaction's adjusted EBITDA multiple of 9x on a trailing-twelve-month basis is within the typical range for similar transactions in the brand solutions and packaging industry.
• Comparable companies in the industrial sector, such as Fortive and Roper Technologies, often trade at similar or higher EBITDA multiples depending on their growth prospects and business mix.
• The strategic review process and potential divestitures align with actions taken by other diversified industrial companies like 3M and Honeywell to focus on core businesses and improve shareholder returns.

Stakeholder Impact

• Shareholders are directly impacted by the proxy contest and the outcome of the vote on director nominees.
• Employees of SGK will be impacted by the sale to SGS & Co.
• Customers and suppliers may be affected by any strategic changes resulting from the strategic alternatives evaluation.

Next Steps

• Shareholders are urged to vote on the WHITE proxy card for Matthews' director nominees.
• The company expects to announce several initiatives over the course of the 2025 fiscal year related to its strategic alternatives evaluation.
• The SGK transaction is expected to close, with Matthews receiving $350 million in total upfront consideration.

Key Dates

Keywords

proxy contest, shareholders, director nominees, strategic alternatives, SGK Brand Solutions, Barington Capital, Matthews International, board of directors, shareholder value, divestiture